It's been more than 50 years since Luther Terry, the Surgeon General of the United States at the time, unveiled the first-ever report linking smoking with serious health complications like lung cancer and heart disease.
Since this groundbreaking report, the Centers for Disease Control and Prevention and other health agencies have done what they can to dissuade current smokers from continuing the habit, and to keep young adults and teens from picking up the habit. Their efforts appear to be working. As of a CDC Mortality and Morbidity Weekly Report from December, just 42.1 million American adults are still smoking, representing an all-time record low of just 17.8% of the adult population. For context, this figure was handily over 40% in 1965.
The true toll of smoking
Although the push to educate people about the dangers of smoking tobacco has made headway, smoking-related illnesses have nonetheless claimed a substantial number of lives since Terry's report, and led to a monstrous financial burden for the U.S. healthcare system.
Based on statistics provided by WalletHub, some 20 million Americans have lost their lives to smoking-related illnesses, including 2.5 million nonsmokers that developed a disease as a result of long-term secondhand-smoke exposure. It's also the leading cause of lung cancer, the top cause of death among all cancer types.
Smoking is also a mammoth financial burden for our hospitals and health-benefits providers. WalletHub pinpoints that smoking results in $301 billion in costs each year, including direct healthcare costs, and indirect workplace productivity losses and premature death.
But, what if I told you that these financial costs from smoking were just the tip of the iceberg?
Smoking can hurt your wallet, too!
According to a report issued by WalletHub earlier this week, the lifetime financial burden of smoking can equal anywhere from $1.1 million to as much as $2 million per smoker!
WalletHub came to these figures by assuming that the average smoker picks up the habit at age 18 and smokes one pack a day for 51 years. Why 51 years? That's because the average smoker dies at age 69. WalletHub then broke down the cost per smoker by state, taking into account four separate estimated costs:
- Tobacco cost per smoker
- Healthcare cost per smoker
- Income loss per smoker
- Other costs per smoker
Tobacco costs per smoker were the heftiest cost component of all because it factored in the average cost for a pack of cigarettes in each state and compared this figure against how much an individual would have earned by instead investing this money. Healthcare costs take into account any direct expenses connected to smoking-related complications. Income loss per smoker represents the wage gap created between smokers and nonsmokers due to absenteeism and/or lower productivity associated with smokers. Finally, other costs factor in the costs shouldered by secondhand-smoke victims as well as other credits that smokers would lose out on, such as homeowners insurance credits.
Seven states where smokers have the highest financial burden
Altogether, WalletHub determined that the financial costs of smoking equate to $1.1 million to $2 million per smoker. But, seven states stood out in a bad way as having the highest estimated financial loss per smoker:
- Alaska: $2,032,916 (cost per smoker)
- Connecticut: $1,992,690
- New York: $1,982,856
- Massachusetts: $1,979,050
- Rhode Island: $1,945,724
- New Jersey: $1,874,155
- Hawaii: $1,853,787
By far, there were two big difference that propelled these seven states to the dubious top of WalletHub's financial burdens list. First, these states have some of the highest cigarette prices per pack in the country. Blame it on taxes or strict government regulations, but all seven of these states were at the bottom when it came to highest tobacco costs per smoker.
The other factor involved higher overall healthcare costs per smoker relative to the other 43 states. These seven states (excluding the District of Columbia) represented seven of the 12 highest healthcare cost states.
A slow push to alternatives
Consider this WalletHub report just another of many blows against the tobacco industry and all the more reason for these companies to hedge their futures with anti-tobacco products such as electronic cigarettes.
Electronic cigarettes heat a liquid solution often containing nicotine into a vapor, which is then inhaled by the user. Tobacco smoke contains some 8,000 known chemicals, and with some of those chemicals known to be carcinogens, the perception is that electronic cigarettes could be the wave of the future since they're believed to be safer.
Unfortunately, that push to the next-generation of "smoking" appears to be stuck in the slow lane despite a fast start.
One issue with electronic cigarettes is there's little known about their health effects on the body. These devices are relatively new, so their long-term effect on a users' lungs is still very much in question. For example, just over a week ago, researchers in an article published in the New England Journal of Medicine observed the presence of formaldehyde-containing hemiacetals formed during the vaping process in a lab test. Formaldehyde is a cancer-causing agent, so this isn't exactly good news for the tobacco industry or electronic cigarette users.
Also, there's a very real possibility that the Food and Drug Administration is going to get involved in the regulation of electronic cigarettes. One reason they might do this relates to what we just discussed: no long-term health safety data. However, the FDA may want to step in for other precautionary reasons, such as to ensure teens don't get their hands on these products (remember, most liquid solutions still contain nicotine, which is addictive), or to control the quality aspect of the liquid solution being produced. I don't see regulation as a bad thing for consumers, but it'll almost certainly slow or stall growth for electronic cigarette producers such as Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI).
On the defensive
In the meantime, I wouldn't be surprised to see Big Tobacco remain on the defensive in the coming years.
Tobacco giant Altria (NYSE:MO), famous for its Marlboro brand in the U.S., has had to get aggressive since the start of the decade in order to grow its bottom line. The company announced a 15% workforce reduction to cut its expenses back in 2011, and it's been raising its cigarette prices with regularity each year as cigarette volumes have declined. Tobacco companies such as Altria have relied on the addiction factor of tobacco for ensuring its profits stay comparable on a year-over-year basis, but declining adult smoking rates and higher prices could be a dangerous long-term recipe for this industry, especially if electronic cigarettes don't wind up being the blockbuster some Wall Street analysts once expected.
I, for one, respect the efforts of Big Tobacco to offer products for smokers and those who want to quit, but I don't see a particularly bright future for most tobacco producers (at least within the United States). Unless the dynamics of the industry begin to change rapidly, I suspect investors could start to see their investments going up in smoke.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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